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Capital Account Liberalization, Capital Flow Patterns, and Policy Responses in the EU's New Member States

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  • Zsófia Árvai

Abstract

This paper discusses the experience of the EU's eight new member countries (EU8) between 1995 and 2003 when the bulk of capital account liberalization took place, focusing on interest-rate-sensitive portfolio flows and financial flows. It takes stock of the lessons from capital flow patterns to draw policy conclusions. There were two distinct groups in terms of the speed of capital account liberalization: rapid liberalizers and cautious liberalizers. The speed of disinflation and the level of public debt were major determinants of the size of interest-rate-sensitive portfolio inflows. Monetary and exchange rate policies were the main instruments used to react to large interest-sensitive inflows, whereas fiscal tightening was seldom used as a direct reaction to inflows.

Suggested Citation

  • Zsófia Árvai, 2005. "Capital Account Liberalization, Capital Flow Patterns, and Policy Responses in the EU's New Member States," IMF Working Papers 05/213, International Monetary Fund.
  • Handle: RePEc:imf:imfwpa:05/213
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    References listed on IDEAS

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    1. Pekka Sutela, 2002. "Managing capital flows in Estonia and Latvia," Macroeconomics 0209008, EconWPA.
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    4. Lusinyan, Lusine & Buch, Claudia M., 2002. "Short-Term Capital, Economic Transformation, and EU Accession," Discussion Paper Series 1: Economic Studies 2002,02, Deutsche Bundesbank, Research Centre.
    5. Sebastian Edwards, 2001. "Capital Mobility and Economic Performance: Are Emerging Economies Different?," NBER Working Papers 8076, National Bureau of Economic Research, Inc.
    6. Arteta, Carlos & Eichengreen, Barry & Wyplosz, Charles, 2001. "When Does Capital Account Liberalization Help More Than it Hurts?," CEPR Discussion Papers 2910, C.E.P.R. Discussion Papers.
    7. Claudia Buch, 1999. "Capital mobility and EU enlargement," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 135(4), pages 629-656, December.
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    9. Nancy L Wagner & Dora M Iakova, 2001. "Financial Sector Evolution in the Central European Economies; Challenges in Supporting Macroeconomic Stability and Sustainable Growth," IMF Working Papers 01/141, International Monetary Fund.
    10. Leslie Lipschitz & Alex Mourmouras & Timothy D. Lane, 2002. "Capital Flows to Transition Economies; Master or Servant?," IMF Working Papers 02/11, International Monetary Fund.
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    Cited by:

    1. Lane, Philip R. & Milesi-Ferretti, Gian Maria, 2007. "Capital flows to central and Eastern Europe," Emerging Markets Review, Elsevier, vol. 8(2), pages 106-123, May.
    2. repec:kap:openec:v:28:y:2017:i:3:d:10.1007_s11079-016-9418-8 is not listed on IDEAS
    3. Philip R. Lane, 2008. "The Macroeconomics of Financial Integration: A European Perspective," The Institute for International Integration Studies Discussion Paper Series iiisdp265, IIIS.
    4. Gehringer, Agnieszka, 2013. "Growth, productivity and capital accumulation: The effects of financial liberalization in the case of European integration," International Review of Economics & Finance, Elsevier, vol. 25(C), pages 291-309.
    5. Juan Sole & Gabriel Sensenbrenner & Amor Tahari & J. E. J. De Vrijer & Marina Moretti & Patricia D Brenner & Abdelhak S Senhadji, 2007. "Financial Sector Reforms and Prospects for Financial Integration in Maghreb Countries," IMF Working Papers 07/125, International Monetary Fund.

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    Keywords

    European Union; Capital account liberalization; Capital flows; EU accession; capital account; capital inflows; current account; Financial Markets and the Macroeconomy; Financial Aspects of Economic Integration;

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